October 23, 2013 / 1:56 PM / 4 years ago

UPDATE 1-India's third biggest gold fund reopens to investors

* Reliance Gold Fund manages about $300 mln
    * Govt has taken steps to curb gold imports and trade gap

 (Adds quotes, details)
    By A. Ananthalakshmi and Siddesh Mayenkar
    SINGAPORE/MUMBAI, Oct 23 (Reuters) - India's third biggest
gold fund will begin accepting fresh investments again after
shutting off new buy-ins three months ago to support government
efforts to curb bullion demand and control a rising trade
    Reliance Gold Savings Fund, which manages about $300 million
according to Lipper data, will begin accepting subscriptions
from Wednesday after suspending inflows on Aug. 1, according to
a notice sent to investors. 
    The government and the central bank launched a series of
measures this year to curb the country's appetite for gold as
India battled a ballooning trade deficit and a weak currency.
Gold is the biggest item on India's import bill after oil.
    The gold fund is part of Reliance Capital,
controlled by billionaire Anil Ambani. It ranks in India after
exchange-traded funds run by Goldman Sachs and Reliance.     
    "The economic conditions are getting better and the dollar
has come down...," said Sundeep Sikka, chief executive officer,
Reliance Capital Asset Management, justifying the relaunch.
    The rupee, which saw record weakness to 68.85 rupees per
dollar in late August, has appreciated 11 percent since then.
India's trade deficit narrowed last month following lower gold
purchases and an increase in exports, supporting the rupee.
Trade deficit hit a record in the year to March 2013.
    Gold investors have been net sellers in the fiscal year from
April 2013 till September, and analysts said there could be
investments into the yellow metal going ahead.
    "Investment interest in gold is expected to increase as the
dollar is in the weakening mode with uncertainties which has led
to a rally in gold prices. This could revive investment interest
through the ETF route," said Gnanasekar Thiagarajan, a director
with Commtrendz Research. 
    There has been a net outflow of about 12.26 billion rupees
($198.83 million) in the 14 ETFs, compared to an inflow of 2.97
billion rupees in the same period last year, data from the
Association of Mutual Funds of India showed. Gold ETFs had about
104 billion rupees under management till September 2013, only 1
percent of the industry's asset under management.
    However, the biggest challenge will be to find gold supplies
as the government measures to slow imports have caused premiums
in India to jump to $120 an ounce over London prices as supplies
have been unable to meet demand. 
    "With the restart of this gold fund (by Reliance Mutual
Fund), demand for physical gold will increase and this will
again put pressure on supplies," said Bachhraj Bamalwa, a
director at the All India Gems and Jewellery Trade Federation.
    Imports have slowed to a trickle in India ahead of key
festivals including Dhanteras, the biggest gold buying festival,
next week and weddings thereafter.
    "They should not have restarted at this critical moment. If
this increases imports, government may be forced to impose
further restrictions," said Bamalwa.
    Earlier this year, Reliance said it would close the fund to
fresh investment and suspend sales of physical gold to support
the "policy objectives" of the government and the Reserve Bank
of India. It was the only fund to do so. 
    India has imposed a 10 percent duty on imports of gold, and
tied imports to exports. Imports have fallen to a mere 7 tonnes
in September from a record 162 tonnes in May.
($1 = 61.6600 Indian rupees)

 (Reporting by A. Ananthalakshmi in SINGAPORE, Siddesh Mayenkar
in MUMBAI and Nishant Kumar in HONG KONG; editing by James
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